Correlation Between Alamo and Wabash National

Can any of the company-specific risk be diversified away by investing in both Alamo and Wabash National at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Alamo and Wabash National into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alamo Group and Wabash National, you can compare the effects of market volatilities on Alamo and Wabash National and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Alamo with a short position of Wabash National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alamo and Wabash National.

Diversification Opportunities for Alamo and Wabash National

0.2

Correlation Coefficient

Alamo  Wabash National

Modest diversification

The 3 months correlation between Alamo and Wabash is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Alamo Group and Wabash National in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wabash National and Alamo is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Alamo Group are associated (or correlated) with Wabash National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wabash National has no effect on the direction of Alamo i.e., Alamo and Wabash National go up and down completely randomly.

Pair Corralation between Alamo and Wabash National

Considering the 90-day investment horizon Alamo is expected to generate 1.14 times less return on investment than Wabash National. But when comparing it to its historical volatility, Alamo Group is 1.37 times less risky than Wabash National. It trades about 0.07 of its potential returns per unit of risk. Wabash National is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,367  in Wabash National on January 26, 2024 and sell it today you would earn a total of  1,075  from holding Wabash National or generate 78.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Alamo Group  vs.  Wabash National

Alamo Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alamo Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Alamo is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Wabash National

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wabash National has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Wabash National is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Alamo and Wabash National

The main advantage of trading using opposite Alamo and Wabash National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alamo position performs unexpectedly, Wabash National can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Wabash National will offset losses from the drop in Wabash National's long position.

The idea behind Alamo Group and Wabash National pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.